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Upgrade your sub-prime mortgage company

National Mortgage Professional
Mar 24, 2014

Upgrade your sub-prime mortgage companyRichard BitnerSub-prime, non-conforming loans

When it comes to originating sub-prime loans, the impact created by mortgage brokers has been nothing short of phenomenal. While the total origination volume of sub-prime mortgage loans has more than tripled in recent years, mortgage brokers have been responsible for generating more than half of that total business.
With mortgage brokers playing such a pivotal role in sub-prime production, it's no surprise that lenders continue to battle each other for an increasing share of this market. As a result, mortgage brokers have been the beneficiaries of increased industry offerings. Aggressive products, marketing support, and access to numerous automated underwriting and pricing tools are only some of the recent advancements that sub-prime lenders have made available to the marketplace.

Yet, with all of these advancements, the increase in total sub-prime volume has created a significant shortfall in the area of customer service. As the owner of a wholesale sub-prime company, the biggest compliant I've heard from brokers when it comes to originating these types of mortgages has been the overall difficulty in getting deals completed. While the reasons vary from broker to broker, many of them fall under the heading of "being over-promised and under-delivered." With service levels varying so widely, it is critical for brokers to monitor and evaluate the service they receive from their sub-prime lenders. Since competition for broker business is at an all-time high, originators shouldn't have to settle for second-class service. When you stop and consider the potential loss for revenue associated with poor service, it is critical to align yourself with two-three sub-prime lenders that provide you the necessary products and services to be effective. If you've ever lost a purchase money deal because the lender couldn't fulfill their promise to close the loan before the contract expired, you understand the importance of dependable service.

How do you know if the service you are receiving is better or worse than what other brokers are getting from their sub-prime lenders? The key to answering this question is to analyze the overall performance levels provided by your sub-prime lenders and to use that as a benchmark for comparison.
While this analysis is subjective in nature, a critical step to performing an effective study starts with understanding the criteria most critical to your success. To do that, we'll utilize the results from a recent industry-wide study conducted by Campbell Communications. The study polled 1,800 brokers nationwide about their view of non-prime lending and specific lenders. One specific series of questions asked mortgage brokers to rank the reasons why they use wholesale lenders for non-prime mortgages. The results included a top 10 ranking of the most important factors in working with non-prime wholesale lenders. Of the top 10 factors listed in the study, nine of them focused on issues relating to customer service. The top five reasons, ranked in order, were: sales reps returning phone calls/e-mails, reliable pre-approvals, dependable turn times, knowledgeable sales reps being, and a good chance of underwriting approval. Of the top 10 reasons, none of them included having low or competitive rates.

After the article was published, I spoke with a number of our brokers' clients, asking them what they thought of the results. In each instance, they indicated that service was clearly paramount when it came to placing sub-prime loans. In discussing the issue further, it was apparent that the reasoning behind the answers was tied to low "pull-through" ratios. In this case, pull-through was defined as the percentage of loan submissions that were actually funded. Many brokers mentioned that it wasn't uncommon to submit a loan to a sub-prime investor, have the loan turned down, and eventually close it with a different lender.

The top 10 factors identified in the Campbell Communications study provide an excellent blueprint for evaluating the service you receive from your sub-prime lenders. Below you'll find an assessment tool to help you analyze the service you receive from your main sub-prime lenders. In this questionnaire, the top 10 factors are presented as questions you can utilize to rate your lenders' performances.

To begin, insert the lender's name at the top of the page. Each question will give you the ability to answer on a 1 to 5 scale, with "1" being lowest and "5" being the highest. Read each question for your chosen lender and circle the number that most accurately represents your answer. When you've completed question number 10, go back and add up the numbers for each question. For example, if the lender scored a "4" for all 10 questions, they would have a total score of 40. Once youve totaled the score, look at the corresponding grade scale at the bottom of the questionnaire and assign that lender a letter grade.
The objective is to determine how well your lenders are performing based on the criteria that mortgage brokers have identified as the most important. Hopefully, if you agree with the notion of aligning yourself with two-three sub-prime lenders, this exercise will help you determine if your lenders are "making the grade." Repeat this exercise for your top three lenders and assign each one a grade. If all three of the lenders you graded score an "A" or "B," then you're well positioned to build your sub-prime lending partnerships. However, if any one of the three received a "C" grade or worse, then you've got some room to upgrade.

As the "A" market shrinks and you, as a loan originator, produce more sub-prime business, you can't afford to get caught off guard. With more than 100 sub-prime lenders competing in today's mortgage arena, the choice is yours. If you settle for less than exceptional service, you will make less than exceptional income.

Richard Bitner is president of Plano, Texas-based Kellner Mortgage Investments. He may be reached at (972) 265-8200.

Broker Questionnaire
Lender's Name:

On a scale of 1-5, with 1 being the lowest and 5 being the highest, how would you rate the following?

1. How responsive is your account executive in returning your phone call or e-mail when contacting them to initially discuss your deal?

 1    2    3    4    5  

2. How reliable are the pre-qualifications from your account executive?

 1    2    3    4    5  

3. How knowledgeable is your account executive regarding their company's programs?

 1    2    3    4    5  

4. How dependable are the promised turn times? Do they back up what they say?

 1    2    3    4    5  

5. To what extent do you find underwriting to be flexible with guidelines?

 1    2    3    4    5  

6. How pleased are you with the performance of the coordinator/account manager?

 1    2    3    4    5  

7. How pleased are you with the performance of the closing department?

 1    2    3    4    5  

8. How pleased are you with the actual turn times for underwriting and closing?

 1    2    3    4    5  

9. How easy was it for you to understand and determine pricing?

 1    2    3    4    5  

10. How would you rate the company's overall performance?

 1    2    3    4    5  

Grade Scale

100-90   A

89-80   B

79-70   C

69-60   D

59 and below   F



Published
Mar 24, 2014